Two Stock Divisions with Potential Increases of Up to 174% by 2025, Suggests Certain Wall Street Experts
Two Stock Divisions with Potential Increases of Up to 174% by 2025, Suggests Certain Wall Street Experts
Over the past two years, it's been bulls running amok on Wall Street. While the majority of these gains can be traced back to the growth of artificial intelligence (AI), AI isn't the sole driver pushing broad-market indexes to new heights.
The skyrocketing Dow Jones Industrial Average, S&P 500, and Nasdaq Composite in 2024 can also be attributed to the excitement surrounding stock splits in some of Wall Street's powerhouse businesses.
The Stock-Split Frenzy on Wall Street in 2024
A stock split is a tool that publicly traded companies can draw from to aesthetically adjust their share price and outstanding share count by the same degree. These modifications are superficial, having no impact on a company's market cap or operational function.
Since the beginning of this year, more than a dozen prominent companies have carried out stock splits. The majority of these splits have been forward, making shares in publicly traded companies more affordable for regular investors and employees who can't otherwise purchase fractions of shares.
Investors tend to gravitate towards companies that implement forward splits for one primary reason: sustained growth. Companies that lower their share price in order to make it more affordable for everyday investors invariably outperform and innovate better than their competitors. Essentially, these are the types of businesses we would anticipate outperforming in the long run.
Interestingly, AI stock splits were all the rage this year. Two of the most prominent AI hardware players, Nvidia (NVDA -2.33%) and Broadcom, carried out respective 10-for-1 forward splits in June and July.
The Outlook for Wall Street's Stock-Split Stocks Before 2025
However, the future of Wall Street's stock-split stocks is quite different as we inch closer to the new year. According to projections from certain Wall Street analysts, two AI stock-split stocks have the potential to achieve gains of up to 174% in 2025.
Super Micro Computer: Projected upside of 174%
The first stock-split stock that holds the potential to climb higher in 2025, as per the forecast of one Wall Street analyst, is Super Micro Computer, specialists in customizable rack server and storage solutions. Super Micro completed its initial split (10-for-1) following the market's close on Sept. 30.
Despite a turbulent year, Loop Capital's Ananda Baruah asserts that Super Micro's stock may reach $100 per share. If Baruah's estimation were to come true, it would imply a 174% increase from where shares closed on Dec. 13.
The bullish case for Super Micro Computer is fairly straightforward. While Nvidia's GPUs are undeniably the top choice to speed up computing capabilities in enterprise data centers, Super Micro has been among the top options for data center infrastructure. Businesses intent on securing a first-mover advantage are investing heavily in the physical infrastructure required to realize this advantage.
In early August, Super Micro reported a 110% increase in fiscal 2024 sales (ending June 30, 2024) to nearly $15 billion. Integrating Nvidia's highly sought-after GPUs into its customizable rack servers has played a significant role in the virtually insatiable demand for the company's data center infrastructure.
But things aren't all sunshine and roses.
Just three weeks after Super Micro announced its financial results, short-seller Hindenburg Research released a report accusing the company of accounting manipulation. Since the report was released, Super Micro Computer has:
- Delayed filing its annual report with the Securities and Exchange Commission.
- Seen its accounting firm, Ernst & Young, which had previously raised concerns about internal controls, resign as the company's auditor.
- Faced an initial-stage accounting probe by regulators, according to the Wall Street Journal.
- Been removed from the Nasdaq-100.
- Engaged Evercore for potential capital raise.
Although an independent special committee does not expect any financial restatements and anticipates remaining listed on the Nasdaq exchange, numerous questions remain unanswered until Super Micro files its annual report and receives the necessary sign-off from an auditor.
It's unlikely that Super Micro will scale Wall Street's highest price target in the new year.
Lam Research: Projected upside of 49%
The other stock-split stock that one Wall Street analyst believes can surge in the new year is Lam Research, a semiconductor wafer fabrication equipment company. Lam's board approved a (you guessed it!) 10-for-1 forward split in late May, which went into effect following market hours on Oct. 2.
Out of more than two dozen analysts that cover the company, none is more optimistic than Berenberg Bank's Tammy Qiu. Qiu's $1,140 price target, which was adjusted down to $114 per share due to Lam's late May forward split, implies up to 49% growth potential for this semiconductor equipment colossus.
The company's tools primarily handle high-speed data storage known as High-Bandwidth Memory (HBM). HBM plays a crucial role in speeding up computations and managing large data sets, which are vital for constructing and educating large language models and executing generative AI solutions. In essence, Lam Research serves as a significant component in the establishment of mainstream artificial intelligence solutions.
Similar to Super Micro Computer, attaining success is not a straightforward journey for Lam Research. Although it does not face the financial uncertainties that plague Super Micro, there exists a significant concern.
China is of paramount importance to Lam Research. During the second and third quarters of the year, it accrued 39% and 37% of its respective revenue from China, the world's second-largest economy. The drawback is that U.S. regulatory bodies and the approaching Donald Trump administration may create complications.
In 2022 and 2023, U.S. regulatory bodies imposed limitations on the export of powerful AI chips and associated equipment to China. This affects the core processing components of AI data centers, such as Nvidia, as well as the manufacturers of AI data centers, like Lam Research. With Trump proposing a 35% duty on Chinese imports from the outset of his second term, Lam Research's primary market for sales could turn into a source of concern.
Lam Research's stocks are not exactly reasonably priced at this moment. Considering its shares being close to 22 times the projected fiscal 2024 (ending June 30, 2024) cash flow, it carries a 21% premium in comparison to its typical trailing-12-month cash flow over the past five years.
For Lam Research to reach Qiu's projected price of $114 per share by 2025, it will probably rely on substantial improvements in U.S.-China relations.
The stock-split frenzy on Wall Street in 2024 has led to an increase in the affordability of shares for regular investors, which in turn, has attracted more investors. This surge in interest has contributed to the sustained growth and outperformance of companies that have carried out stock splits. (money, investing)
Wall Street analysts predict that two AI stock-split stocks, Super Micro Computer and Lam Research, could achieve gains of up to 174% and 49% respectively, before 2025. (money, finance)